I recently read a magazine article that pointed to an ever-growing group of people – centenarians. The percentage of people who live beyond age 100 is rapidly increasing. With that in mind, I thought this would be a good time to discuss long term care insurance.
The importance of having long term care insurance cannot be emphasized enough. It has been estimated that about half of people living today will need long term care at some point in their lives. About 75% of people over the age of 65 will need long term care.
In talking with many of my clients, as they aim to look out for family, the resounding majority do not want to be a burden on their spouses or their families. Many also want to make sure that illness does not deplete their retirement nest eggs. Long term care insurance can help with both of these concerns.
What is long term care insurance?
Long term care insurance is a type of insurance policy that allows you access to funds to help pay for your long term care needs. As with other types of insurance, the funds are available to you tax free.
When do I need it?
Long term care insurance providers will usually accept your claim if a doctor confirms that you are unable to perform at least 2 of the 6 activities of daily living. These are: eating, bathing, dressing, toileting, walking, and continence.
The funds are then made available to pay for the assistance you need. This assistance may come in many forms, including transferring to an assisted living facility or having an in-home care nurse visit you in your home several times each week.
How much do I need?
Individual needs vary. Looking at current expenses for long term care providers can help you determine how much coverage you should have. For example, the national average cost of a private room in a nursing home is about $60,000 per year. The estimated cost of a home care nurse is $19 per hour.
These figures should help you see the value that the policy can bring to your household. Approximately 92% of long term care claims last three years.
Imagine that you are in that group. The cost of the nursing home for three years would be about $180,000. That can severely deplete a retirement nest egg and change the course of living for the future. The unexpected expense can eliminate all retirement money. Approximately 75% of single people and 50% of couples spend all of their savings within one year of entering a nursing home.
What about inflation?
There are riders that you can add to the policy to ensure that the value of your coverage keeps up with the cost of living. This is an extremely important addition. Based on research from MetLife, the cost of long term care rose by about 7% from 2004 to 2006.
We are living longer. Long term care insurance can help us reduce the chances of depleting our retirement nest eggs. But more importantly, it may stop us from being a burden on our spouses or our families and provide us with the comfort we need during such a difficult time.
